Finance Minister Arun Jaitley introduced the Insolvency and Bankruptcy Code in Parliament on Monday, looking to modernise an outdated system and allow speedy exits from failed businesses.

The code, regarded as a badly needed reform, provides for winding up of a failed business in 180 days and is in line with global practices, empowering lenders, operational creditors and companies to initiate insolvency proceedings.

"The existing framework for insolvency and bankruptcy is inadequate, ineffective and results in undue delays in resolution," Jaitley said in the statement on the Bill's objectives. The code will also consolidate related rules that are scattered all over the statute book.

The minister had identified bankruptcy law reform as a key priority for improving ease of doing business in his February budget speech. A comprehensive bankruptcy code, meeting global standards and providing the necessary judicial capacity, will be unveiled in the fiscal year, he had said.

The Bill has been introduced as a money Bill, limiting the role of the Rajya Sabha in its passage. Money Bills can't be defeated in the Upper House, where crucial government reforms such as the goods and services tax (GST) have got stuck because the ruling coalition lacks a majority there.

India currently ranks 136 in the resolving insolvency component of the World Bank's ease of doing business index. Its overall rank is 130. The Bill seeks to consolidate and amend laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner and establish an Insolvency and Bankruptcy Fund and an Insolvency and Bankruptcy Board of India.

"An effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship," according to the objectives. "It would also improve ease of doing business and facilitate more investments leading to higher economic growth and development."

Resolving an insolvency case can currently take more than four years on an average. With projects getting stuck, the banking system has been burdened with bad loans, curtailing its lending capability. The prescribed resolution timeline of 180 days can be cut further to 90 days through a fast-track procedure available for some key categories.

Experts welcomed the legislation. "Having a robust insolvency resolution mechanism can help creditors recover a larger part of their investment faster, allowing them to re-invest in other businesses, thereby facilitating the efficient flow of capital across the economy," said KV Karthik, partner, financial advisory services, Deloitte Touche Tohmatsu India LLP.

"With the current position of stressed assets in the banking system, it will help release locked resources for other productive lending and help banks in reducing interest rates," he said.

The reform will help streamline procedures aimed at reviving companies facing financial distress, Chandrajit Banerjee, Confederation of Indian Industry director general, said in a release.

"The bankruptcy Bill will not only improve ease of doing business in India, it will also ensure a better and faster debt-recovery mechanism in the country," he said.